Galley tells Unilever pension fund hearing of risk control breakdown

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The Independent Online

Carol Galley, the co-chairman of Mercury Asset Management, yesterday admitted there had been a breakdown in the control of investment risk at the once-vaunted fund manager now being sued by Unilever's pension fund trustees.

The issue of risk has become central to the high-profile court battle because Unilever is suing Mercury for £130m on the basis that Alistair Lennard, the fund manager in charge of £1bn of its pension assets, took far too great risks in investment decisions he made in 1997. His dramatic positions contributed to serious underperformance of the Unilever fund and breached performance targets

Ms Galley, who was in charge of Mr Lennard, has maintained throughout her appearance in the witness box that she was happy with the level of risk deployed by Mr Lennard.

But, under pressure from Unilever's barrister Jonathan Sumption QC, she told the High Court the risk controls "were not doing what was expected".

Mr Lennard, who starts to give evidence tomorrow, will have to explain his investment divergences from his peers. This included managing the vast majority of Mercury portfolios that exceeded 4 per cent active risk, a level seen by the investment house as high.

Ms Galley, who looked rattled as she came towards the end of her stint in the witness box, also conceded that Mercury's style of giving wide discretion to individual managers was a "weak proposition".

The company, which is now owned by Merrill Lynch, in fact stepped up its monitoring of managers in the summer of 1997, but by that time had already begun to underperform on the Unilever portfolio.